While the market crashed and lost more than $600 Billion, Elon went on to his Twitter and mentioned the sixth-largest cryptocurrency, Doge. In the last few weeks, Mr Musk’s tweets have been very uncertain on where he stands regarding Dogecoin. The price fluctuations are common for any cryptocurrencies, but when it comes to a meme coin like Doge, the volatility is entirely based on one single tweet. If Elon makes a bold statement on Twitter supporting the coin, it will start pumping, and if he makes a speculative comment, the decline would be drastic- even up to 30-40%.
The reason why we cannot put our complete faith in Elon Musk’s standing is that his perspective on Doge changes every week. Last year, he tweeted, saying, “ Excuse me, I only sell Doge!” This was a reply given to a Twitter user asking for his bitcoin.
In July 2020, the price of Dogecoin was $0.0034, and at the time of writing this article, it stands at $0.3311. This means that in less than one year- the value of the token increased by 100 times. So does this mean Elon will always stand by Doge and help it reach the $1 mark? No, that cannot be concluded with 100% certainty because of two main reasons :
1. Mr Musk’s tweets are not revealing the entire truth on where he stands regarding Doge’s future.
2. Greater fool theory is impractical for a digital asset like Doge.
Let us break it down one by one.
First of all, Elon Musk highlights in his recent tweets that he is holding Doge and is not ready to sell. In his latest tweet, he asks the community- “How much is that Doge in the window?’” He changed his long-term perspective in a short period of time, and that is never a good sign.
Thousands if not millions of first-time investors still believe Doge can really go up to $1 and it is not only the general public- many crypto analysts with a ton of experience think it can be achieved by the end of 2021. This may sound satisfying that the community is growing for Doge and may be more coming along way. However, we should also be aware that Mr.Musk’s tweets are not financial advice. For example, if tomorrow Elon stops tweeting about Doge and is at a new standpoint, can Doge still reach its previous ATH at $0.69 or even go past it? That is highly unlikely and here is why:
There is this- Greater Fool Theory that many use for making investment decisions. We can use the same to understand why Dogecoin is just building a valuation bubble. According to this theory, an investor who believes in the company or an asset because it has strong fundamentals will get significant returns. There will always be a ‘greater fool’ to buy the asset at a higher price.
To understand the difference between Dogecoin and other assets, let us take Tesla and see why people will still buy it at a higher price. The company share price is now at $580, so if you believe in electric vehicles, you can buy Tesla shares and your returns will be significant in the long-term. This has validity because Tesla is solving a major problem that will be immensely compensated in the future.
Now, in the case of Doge, we cannot assume that people will still buy more quantities for $1 each. Everyone in the Doge community is accumulating only because they hope it reaches the one-dollar mark. Do you think there will be a greater fool who will continue to buy dogecoin at $1? That’s right- no one will buy it at that price because it cannot go further.
This up and down movement created by Elon Musk’s tweets is likely not going to last for years to come. So, you have to make sure- you have entered at the right time and taken advantage of the momentum. Be safe out there people and be sure to book your profits.
Born and brought up in India, Karthikeya Gutta is a crypto journalist and freelance contributor for ItsBlockchain. He covers various aspects of the industry with in-depth analysis and research. His passion towards blockchain and crypto ecosystem is mainly because he believes it can really change the world and help millions of people.
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